Amid news of the federal government shutdown and distressing actions by the Trump administration, the American stock markets fell even further in the two trading days before the Christmas holiday. On Monday, the Dow Jones Industrial Average (DJI) fell 2.9% the Nasdaq Composite (IXIC) fell 5%, and the S&P 500 (INX) tumbled 2.7%. As the stock market suffered its worst weekly loss since the global financial crisis a decade ago, anxious investors remain worried about political and economic risks.
On Friday the US government officially entered a partial shutdown after negotiations on a continuing resolution to fund the federal government failed to materialize. Earlier last week, the House of Representatives and Senate each passed a spending bill for President Trump to sign. Although Trump had urged Congress to provide funding for a wall along the border between the US and Mexico, he was widely expected to sign the bill. But then Trump refused to sign the spending bill, so the Republican House passed a new bill that included wall funding. The new bill failed to pass the Senate with Democratic support as lawmakers returned home for the holidays, ensuring a shutdown until the weekend. Because of the lack of $5 billion in funding for a wall of steel slats, employees at the Justice, Interior, State, Housing and Urban Development, and Homeland Security Departments are placed on furlough or working without pay. Investors were spooked by the political instability.
On Monday, the Trump administration increased criticism of Federal Reserve Chair Jerome Powell. Earlier this month, Trump attacked Powell for his commitment to a schedule of rate hikes that make stock markets uneasy. Trump renewed his critiques of the Federal Reserve, tweeting that it is the economy's only problem. Trump stated that the central bank does not feel the market, understand trade wars, government shutdowns, or a strong dollar. In private, Trump has mused with advisors about whether he can fire Powell directly. Powell recently responded that the Federal Reserve operates free of political bias, but investors are rattled by Trump's willingness to go after central bank independence. In an effort to calm the markets, on Sunday Treasury Secretary Steve Mnuchin organized a call with Wall Street leaders to reassure investors that big banks have enough liquidity to lend to consumers and businesses. Instead of making investors feel better, Mnuchin's statement confused them and lead to further selling. Liquidity and capital concerns were not part of investors' worries, but after Mnuchin's stunt, some are reconsidering the soundness of American banks.
The plunges on Friday and Monday dashed investors' hopes of a Christmas rally. Tech especially is beaten down, with the Nasdaq in a bear market. Incoming House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer slammed Trump for his role in destabilizing the markets. This week will confirm if the stock market ends 2018 deep in the red.
The author owns a small long position in the S&P 500 (INX).